JPMorgan buys First Direct​

By Jake Rickman​

What do you need to know this week?

For the fourth time in recent weeks, another large commercial bank has entered into urgent distress over the weekend, resulting in emergency government intervention amid fears of widespread market contagion.

JPMorgan Chase, which is listed as the largest US commercial bank by assets according to the US Federal Reserve, swooped in to purchase First Republic Bank in an overnight sale following the collapse of the bank’s market value last weekend.

This follows on from the recent collapse of two other US banks, Silicon Valley Bank and Signature Bank, as well as UBS’s purchase of Swiss rival Credit Suisse.

Why is this important for your interviews?

While this may at first glance give further credence to the notion that a banking collapse may be imminent if viewed in the context of the other three recent bank blow-ups, market analysts are reacting with more optimism than we might expect.

As one of several FT articles notes, First Republic Bank’s rescue was similar to the other two US collapses in the sense that these were “ad hoc” rescues. That is, that regulators did not follow a prescribed course of action in their intervention and were largely caught off guard by the distress.

However, this deal differs from the other two US bank collapses because JPMorgan purchased all of First Republic Bank’s deposits outright, rather than the Federal Deposit Insurance Corporation (FDIC) having to recapitalise the bank’s balance sheets before the bank was to be purchased by a private buyer (as was the case for the other two most recent US banking collapses). This marks something of a victory for regulators and the banking industry because it indicates that the private sector (viz JPMorgan) is sufficiently confident in the sector to use its own capital to stabilise the situation.

To the optimists, this in turn implies that the banking sector is likely going to continue “fulfil[ling] its essential function of providing credit to businesses” rather than retreat away from the lending market, thereby averting what analysts describe as a “credit crunch”, which refers to where there is an insufficient supply of credit to service demand and can result in severe recessions.

How is this topic relevant to law firms?

As reported by Bloomberg Law, Davis Polk is the lead firm advising JPMorgan on its acquisition of First Republic.

Davis Polk also advised Signature Bank in the sale of its assets to Flagstar Bank, as well as SVB on its sale to First Citizens.

This affirms Davis Polk’s reputation as a leading adviser to buyers, sellers, and other key stakeholders involved in distressed financial institutions.